The broad strokes of adding variety to an investment portfolio through art

The broad strokes of adding variety to an investment portfolio through art

TORONTO — David Heffel says he likes art as part of an investment portfolio because it provides daily dividends.

“They’re assets that you can live with and enjoy on a day to day basis, but more importantly you can share them with family and friends.”

Heffel, president of the Heffel Fine Art Auction House, has seen his share of paintings bought for a pittance sell for hundreds of thousands or even millions that prove to be fantastic returns on investments.

But while returns are far from reliable, investment advisors say it can be a creative way to add a bit of diversity to an investment portfolio.

“I think it’s a great idea,” said Michael Taglieri, who studied art history and worked in the art world before transitioning to become senior wealth advisor at Assante Capital Management Ltd.

“It’s another way to diversify a portfolio, which is important, and it’s a good way to support culture.”

The sentiment is part of a wider trend among wealth advisors who see art as part of growing passion-based investments.

Deloitte’s Art and Finance report said 88 per cent of wealth managers polled said they think art and collectibles should be part of wealth management offerings and about half say diversification is one of the strongest reasons to include art in wealth management.

The 2017 report showed the market can provide steady returns, citing Artnet indices that showed the global contemporary art market had a compound annual growth rate of 8.54 per cent over the previous 15 years.

Investors shouldn’t, however, bank on such returns, as even some high-end art segments have shown negative returns in recent years, while average investors generally don’t have access to the higher-end art tracked in the indices.

Taglieri’s advice to potential buyers is to look for young or emerging artists because the costs of entry are generally much lower.

“If you’re going to an auction and buying from the secondary market of an established artist, your investment is a bit safer, a bit more solid, but you’re going to pay for it.”

People looking to devote a small portion of a portfolio to dabbling in art should look around at many galleries, magazines and auctions to find what style they like, and make sure they love what they’re buying since it’s quite a speculative purchase, said Taglieri.

“You really have to enjoy a piece, because it may take a long time to appreciate.”

Heffel said that while the costs of entry are higher, he prefers to stick with more mid-career artists because the vocation is just so challenging that many artists drop out before being able to establish themselves and add value to earlier works.

“I like to focus on mid-career painters that have some track record of some museum recognition, a public record inclusion, and if you’ve had an opportunity to meet those artists, that they have a lifelong dedication.”

To improve the chances of making a sound art investment, Heffel recommends exploring online databases of private auction sales and other online tools to understand the art market itself and which kind of art holds or increases in value.

Buyers should also factor in insurance costs and make sure the paperwork is in order so the provenance of a piece can be proven, he said.

For investors who would rather avoid the process of identifying, buying and storing high-end art, there are art funds where investors pool capital and buy pieces that would otherwise be out of reach.

However, they don’t come cheap. Art funds are generally only accessible to high net-worth individuals, and can have opaque structures and sometimes onerous terms, making them a fairly niche product.

The funds also run counter to the advice of collectors like Heffel who recommends buyers explore the creative world of fine art and carefully buy according to your taste, and budget.

“In the early stages look at as much art as you can…standing face to face in front of as many art works as you can to educate your aesthetic eye.”